The sale of Australian grocery retailer Franklins to local rival Metcash has come under scrutiny from the Australian Competition and Consumer Commission (ACCC) which said it has serious concerns about the planned acquisition.

The ACCC today (23 September) released a statement of issues, which said the proposed acquisition is likely to result in a “substantial lessening of competition in the market for the supply of packaged groceries to independent retailers in NSW [New South Wales]”.

The competition watchdog said it was particularly concerned that Metcash would be likely to have a “significantly greater unilateral market power”.

It said that if the proposed A$215m (US$203.9m) acquisition proceeds, the deal could prevent others from making a marked impact on the sector and that Metcash may be able to raise prices or reduce service levels to independent retailers as there would be “no credible alternative to Metcash”.

The ACCC’s final decision has been put back until 11 November and it is seeking comment from the market before 15 October.

Commenting on the decision, Gareth Ackerman, the chairman of Franklins’ owner, South African retailer Pick n Pay, said: “Given the competitive dynamics of the Australian grocery sector, we expected the ACCC would scrutinise this transaction closely.”